The Chinese want your land, not the house

Business Spectator’s Florence Chong has posted an article today on China’s increasing appetite for Australian homes, particularly pre-existing detached houses with good land allotments:

Forget about off-the-plan apartments. What cashed-up overseas Chinese buyers really want is a house in Australia, and more precisely, the land on which the house sits.

For the right house in the right suburb, they are outbidding Australian buyers by $100,000 to $200,000 – and sometimes more – to secure the property. They are importing inflation to their country of choice.

“Many people say, erroneously, that Chinese investors are only buying new-built – I can say categorically that that is not true,” says Andrew Taylor, co-founder of juwai.com, a property website visited by 1.5 million potential Chinese investors each month.

“The bulk of our enquiries are for established homes, priced at $600,000 to $1.1 million in Australia – the sort of price range most Australians are also targeting”…

Many of these buyers have friends or relatives in Australia to bid for them. Those without the local connections are still able to purchase – and there have been countless anecdotes of overseas Chinese buyers flying in to inspect and buy Australian properties they found on the internet…

The article provides a bunch of anecdotal claims of Chinese real estate purchases, and how they are pushing-up prices around Australia.

The claim that Chinese nationals are buying Australian pre-existing homes flies in the face of the Foreign Investment Review Board (FIRB) rules, which only permits non-resident foreigners to:

Purchase residential properties under development (i.e. “buying off the plan”), or new construction that has not yet been sold.

Purchase vacant land for development, provided construction commences within 2 years.

Purchase an established home for redevelopment purposes. (You can’t rent out the existing home, but you can rent out new construction after the previous dwelling has been demolished.)

Hence, foreigners are not allowed to acquire established properties, suggesting some illegal activity is going on.

Of course, this is nothing new. Enforcement of the foreign ownership rules has always seemed inadequate. As the mythical Chodley Wontok found out when testing the efficacy of FIRB’s approval processes using bogus visa and passport information, the purported checks and balances in the system designed to prevent foreigners from purchasing pre-existing homes failed dismally, suggesting the rules are little more than window dressing.

Suspicions around foreign investment in Australian property have also arisen because data surrounding foreign investment in Australian real estate is woeful. As Fairfax’s Chris Vedelago discovered first hand when trying to gain data on the extent of foreign investment, such information is next to impossible to obtain and is treated as if it was some kind of state secret. Three Freedom of Information (FOI) requests later and the best Vedelago could come up with is a stack of blanked-out and redacted pages from FIRB.

That said, I continue to view concerns around foreign investment in Australian property as a symptom of our constipated planning system. Absent a substantial reduction of Australia’s immigration intake, the best way to counter concerns around foreign investment is to abandon the urban consolidation policies pursued by Australia’s state governments, which are incompatible with Australia’s high-growth population policy and investment, act to force-up land prices, and worsen housing affordability. Rather, land supply should be deregulated – or at least significantly increased – along with the implementation of “right to build” laws that give land owners the express right to develop their land (subject to only minimum performance standards) unless there is a genuine environmental/social reason not to do so.

With genuine competition between land owners and developers, lower land prices, and an associated boost to the supply of affordable housing, concerns around foreign investment will dissipate, since domestic buyers will no longer feel shut-out and won’t be in search of a scapegoat. But as long as Australia’s governments continue to pump demand and choke supply, some buyers will continue to miss-out and frustrations will grow.

Every time I read articles about this it angers me. It seems almost treasonous that our Governments allow this and does nothing to police it.

We’ve seen what the Chinese rapacious appetite for property has done in their own country, why do we need to import such negative behaviour to our own and further lock out local buyers from the market in preference of foreign owners?

Correct!
In the face of our demand that we must continue with our outrageous living standards we need to make the simple choice
Do we sell mines?
Do we sell farms?
Do we sell RE?
Do we sell what few factories we have left and still own?

If we are not going to sell RE please nominate what we are going to sell.

It doesn’t just seem almost treasonous. It IS treasonous. The government has given preference to Chinese buying up real estate over Australians buying a home. Our government has turned its back on its own people.

It is not a free market at work here. There is corruption in China and while it is not our business to question how the Chinese arrive here with suitcases of cash and how they got their money, we could certainly stop this insane practice of pricing out Australians from owning a property without taking on a lifetime of debt. The very least the government could do is to actually police the laws that are already in place, instead of turning a blind eye.

It wouldn’t even be so bad if other government policies were not in play to keep the market rigged to make sure prices always keep going up. Choking supply, low interest rates, SMSFs, negative gearing, having 70% of our population crowded into big cities, massive immigration – it is absolutely clear that no stone will be left unturned when it comes to maintaining this Ponzi scheme.

How ironic that the Chinese are restricted to one property each in China, but have NO restrictions on buying Australian property.

It is a frightening thought that there is an endless supply of Chinese (and others) who are willing and able to park huge amounts into real estate. I am not blaming the foreigners – this is totally the fault of the government for allowing it.

I am not sure about this (I am sure about the Chinese appetite, just not the land v new-built part). Around my corner of SE Melb which is highly popular with the Chinese, they are definitely a factor in ALL parts of the market. I see no preference for land, in fact that usually gets bought by locals and/or developers who then subdivide and build townhouses that are then sold to Chinese. These are less popular with folks of European background who generally want some type of garden. But RE agents always say that the Chinese don’t care about that, they just want the house.

Would love to know the truth of this. I’d like to make future upgrade plans to avoid competing Chinese money as far as is possible!!

Hillston NSW has very few new immigrants in the town.
Many are descendants of 1800’s boat people.
There are virtually no Chinese buyers.

The Chinese have been a significant part of the Australian community sine the early gold rushes. Like Anglos, many marry other Chinese. There are also immigrants to Australia from the Chinese diaspora which include Malaysia, Singapore, US.

Just because the buyer is Chinese does not mean that they are not Australian citizens or permanent residents and that they do not have a right to buy.

Having said that, the enforcement of the rules is a proven farce.

Can a citizen get a writ of mandamus to force the relevant minister to enforce the rules?

Maybe some FOI on enforcement statistics and the detection procedures and audit would be a godd place to start.

PS. what is the best way to advertsie a Sydney property to Chinese mainland middle to wealthy (but not1%ers). Is there a leading web site or newspaper we should be using? Should we target a couple of cities?

It is the fault of the AFP. It is not the minister whose enforcement function is delegated to the AFP. If the rules are broken there is a liability of imprisonment that ought be enforced. I don’t know how the Commissioner can draw a wage and not be ashamed.

If it was a free market we would have:
– free land supply
– smaller loans as banks would not be guaranteed and therefore required to pay heed to risk
– a tax system that discouraged debt based speculation
– no first home owners grants

Still it doesn’t make sense there are so many cashed up investors. I am sure there is some easy credit dodgy scheme somewhere in the money chain. I have my suspicions it starts with Wall Street QE, would love to understand more about this. But people that worked hard for the money are more careful than so easily throwing $100K – $200K over market price, even if you had the cash.
For the rest of us it’s back to work.

Free market is a red herring – I don’t think there is anyone alive that thinks there is a completely free market or that free markets don’t create unwanted distortions that sensible people prefer to overcome. It’s an extreme view designed to paint some kind of ‘you wished for it’ picture that offers nothing to the debate.

To offer up sovereignty of a small nation to the countries printing the most money is just silly. We have two options – reject non-citizen buyers or put a large land tax on non-citizens. Otherwise we will just be leasing our country back from the money-printers.

This is the exact situation I saw recently in Denistone (walking distance from Eastwood shops in Sydney).

My brother was renting a house there with his wife and two kids for 9 years and the owner decided to sell. The house was over 50 years old, but not heritage listed, and ok but in need of maintenance. The land was a very good size though, and in a great location.

My brother offered $1m to buy the house, a Chinese buyer out-bid at $1.1m. The buyer never even saw the house – they simply didn’t care what it looked like.

The stupid thing is the little old lady selling the house has convinced herself they won’t demolish it (she was apparently quite fond of the house). Greed > sentiment I guess.

Conflagrations Flawse for your home purchase I would have liked you to wait a bit longer but you got it at a good price so that counts most. In any case I’ve been advising of prices too high for a long time and they have just kept going up. The US down turn in the next few months should affect us here soon but it’s always a good time to buy if the price is near the perceived low point of the correction and there are other reasons to buy rather than just economic/

The special treatment is called ‘crony capitalism’. In fact all forms of capitalism are crony in some form or other via markets that are subsidised and/or regulated for purely for the benefits of vested interests or to prevent failed businesses from failing.

The article is not about real estate starobservor, it is about residential real estate.

The US buys more real estate en masse, yes, but the FIRB report figures you quoted include commercial and residential real estate.

Other data (that has been published here before) shows the number of FIRB approvals for china are much much higher in quantity, and much lower than the US in average approval price.

When you look at both sets of data together it is clear that the US is undertaking more investment in Australian businesses. The Chinese average FIRB approval of around $800k shows they are heavily investing in houses.

If dodgy purchases by non-resident Chinese with suitcases of illegitimately gotten cash is so common, then there’s an easy opportunity to take advantage of that. Set up your website advertising randomly selected properties to mainland Chinese (they don’t actually need to be for sale), let them fly in with the cash for the auction and assist them with the paperwork. They’ll think they’re buying the property and will leave the cash behind with you. They’ll have some nice little certificate you give them to show what they own.

I’m not sure someone with ill gotten wealth is going to sue you and risk revealing their dodginess, and over time they’ll learn that investing in Australian property isn’t worth it, unless you are legit.

In all seriousness though, the fear mongering about Chinese buyers is a distraction from land supply problems and the capture of our politicians by developers and land bankers.

Good afternoon Monkey.
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Thinking about this issue I wonder is there really anything illegal happening. I think not.
So the latest wave of property buyers are Chinese. 10 years ago it was cashed-up Brits who seemed to just be buying property here as part of the process of permanent residence. At about that time, the 2003 First Home Ownership Inquiry was underway thanks to govt identification of spiralling housing costs and the impact of immigration was seen as one factor. Investors at the time were more the home-grown variety.
The difference today is that the cash-invasion from China-based buyers is well orchestrated. There seems to be the view expressed here that suitcases of cash are arriving through airports. That might be true. However, I think it much more likely that cash arriving at auctions in Series 3 BMWs has come from the local branch of a Shadow Bank just down the road in Chinatown. If the cost is say 1% commission to pick up your money locally, that’s a small price rather than risk getting pinged coming through airport.
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Is the money ill-gotten in China? Perhaps. Irrelevant in a way. Remember all the golf courses on the Gold Coast? Still here, waiting for rezoning.
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So a potential offshore buyer or investment clan sends money through the Shadow bank system and it is used to buy property here. What are the vehicles used here? Are they legal?
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Scenario#1: Say I have a relative in Aus who is over retirement age (65). An Aus SMSF is set up to receive money and this is used to buy investment properties here. It is irrelevant whether or not offshore investors move here or not. They are just going to enjoy capital gains tax free, maybe on-sell to another ‘investor’ through the said SMSF later.
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Scenario#2: I am an Aus investor who decides, thanks to connections in China, to source funds to expand my ‘empire’. In exchange, offshore investors will somehow receive a dividend with potential for capital gains down the track.
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Scenario#3: My family/clan is wealthy enough to afford to send one of our princelings/princesslings to schooling in Australia. While there it is good if she/he has a home for the next 5-10 years of schooling/uni, so we get to diversify our portfolio also. Australia is a good place to retire, an almost tax-free haven for the wealthy. Done.
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None of the above 3 scenarios are illegal. If the numbers of “off-shore investors” was few there would be no great distortion of prices. This is not the case.
I agree, more needs to be done with land supply. But that alone will not help FHBs enter the market.
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Someone here the other day mentioned we could just have one party – the Laberal Party, a single-state party, with what agendas? – obviously one that does not include playing fair with local FHBs.